For as long as there has been real estate there have been people who have profited from investing in it and that is something that has never changed. In fact if you were to ask most financial advisors where the best place would be for you to put your cash the large majority will tell you that real estate makes a lot of sense. The reason for this is that there is a low risk attached to this kind of investment, especially when compared with the stock exchange or investing in start-ups. Another reason people like to invest in real estate is because they are investing in something tangible, something which they can see and touch rather than numbers on a screen. To understand how people make money from their real estate investments, we spoke to industry expert Tyler Tysdal to find out more.
Private Equity Groups
In the early 90s we started to see a number of groups of investors being formed into a private equity group that took advantage of extremely low property prices and the use of real estate bridge loans. The idea behind these private equity groups is that they would be able to buy large amounts of properties and then much like any other private equity groups, it would repay investors with small returns over the long term, as and when properties were liquidated. The still exist and for the investment which people put in, they can see returns each year of around 6% and 8%, sometimes more. Most people who invest in these groups are families, companies and individuals who are looking at investing over the long term.
In its most basic form flipping properties is about buying them very cheap, usually in an auction setting, and then making a quick sale with a small return, and then repeating this multiple times. What usually happens is that investors will buy dilapidated property or properties which are in need of renovation using an estate loan in some cases. They will buy the property at the low end of the market, invest funds into renovating the property and then sell quickly for a gain. If you know what you are doing this can be a great way to make large gains.
The most common way that people make money from real estate is to buy properties with the idea of renting them out. The reason for its popularity is that in doing this investors can see cash flow each month as the rent is paid and over time the rental actually pays for the cost of the property, whilst the owner still has the asset on their hands. This enables you to make money from your property and it also gives you the option of selling should the market pick up and the property increase in value. This method also protects the owner against negative equity.